Chicago officials are offering the newly joined Chicago Mercantile Exchange and Chicago Board of Trade a potentially handsome wedding gift from taxpayers: millions of dollars in government subsidies, even as the exchange prepares to lay off more than 400 local workers.
In a July 6 letter sent to the heads of the exchanges days before shareholders approved the Merc's $12-billion acquisition, Lori T. Healey, Mayor Richard M. Daley's chief of staff, dangled what insiders say is as much as $40 million in potential aid to help the world's biggest futures market get off to a fast start. Illinois' economic development director, Jack Lavin, in a separate July 6 letter, also offered assistance.
The potential funds, perhaps in the form of a tax-increment financing grant from the city, could go toward building upgrades as the Merc moves pit-traded agriculture and financial markets from its 30 S. Wacker Drive headquarters to the CBOT's bigger space at 141 W. Jackson Blvd. The Merc plans to convert its Wacker Drive trading floors into offices.
CME Group Inc., the new name of the combined exchange, will spend $200 million on both projects, according to the letters. That's where the government comes in.
City Hall is prepared to offer "assistance to facilitate the real property acquisition and property rehabilitation that is part of your historic efforts in Chicago," Ms. Healey wrote in the letter. "You can rest assured the city is committed to assisting in the retention of these two great Chicago companies and their related employment. . . . "
The letter doesn't put a dollar value on the assistance, but a political insider says the letter's focus on building reconstruction points to TIF funding, which can cover as much as 20% of the cost of such projects. The CBOT's 77-year-old Art Deco building sits in one of the city's approximately 140 TIF districts, which aim to spur development by offering subsidies drawn from property tax revenue.
'VERY APPROPRIATE' OFFER
Laurence Msall, president of the tax policy watchdog Civic Federation, says the offer is "very appropriate, because the city has an interest in seeing the Merc and the Board of Trade strengthening their commitment to Chicago. But the city needs to make sure that its assistance has a long-term benefit to the city, rather than just for the for-profit company."
No funds have been committed, a spokeswoman for the mayor's office says. "The letter was prepared to show general support" for the merger, she says. "They'll have to apply for assistance." As for state help, the Merc could receive job-training funds, a spokesman for Gov. Rod Blagojevich says.
Meanwhile, the exchange will slash its combined payroll to 1,750, or 19% below current levels, based on figures in the letter. The cuts are part of a plan the exchanges say will reduce expenses by about $150 million a year.
"There are certainly people who will be affected. We haven't yet identified what those numbers are," CME Group CEO Craig Donohue told reporters last week.
RECORD EARNINGS
The expected job cuts would come soon after both exchanges reaped record earnings as financial trading boomed. In 2006, the Merc and CBOT generated combined profit of $579 million on $1.71 billion in revenue. The cuts would be the latest round of layoffs stemming from mergers or acquisitions among Chicago-area companies.
While Mr. Donohue said jobs could be cut from both exchanges, personnel decisions to date suggest that most of the 410 anticipated layoffs will come from the CBOT, which has about 730 employees. The Merc earlier this year named only one CBOT executive — Chief Operating Officer Bryan Durkin — to the 12-person management team of the combined company.
Marketing, accounting, human resources and other positions duplicated by the merger will take the biggest hit, with reductions of as much as 30%, says Rick Cobb, executive vice-president at outplacement consultancy Challenger Gray & Christmas Inc.
"If organizations are smart about their cuts, they should cut deeper than they need to in order to bring in new talent," Mr. Cobb says. Any incentives from the city are likely not tied to promises to reduce layoffs, he said.
CME Group will create 143 new full-time jobs within two years and 750 jobs over the next 10 years, according to the letters.
No comments:
Post a Comment